Let’s assume we have a $50,000 account and a $2,000 Drawdown. In this way the Drawdown would remain at 48,000. What happens if I make an operation and my account is at 51 thousand dollars? Well, the Drawdown is close to 49 thousand. The maximum we can have is 2 thousand dollars, it can be reduced if we lose, it can never increase more than 2 thousand and we will drag it along.
Therefore, if I make a trade, I take the account to 51 thousand dollars and I have not closed it, the drawdown drags from 48 thousand to 49 thousand but if that same trade ends in a break because I have not closed it or I have lost a thousand dollars We’ll go back to 50 and we’ll only have a thousand dollars left as a drawdown.
The drawdown will always come closer but it will never go back. Therefore, you have to try not to hit any ball. It is better to make smaller operations of less value or leveraged of less points and to make many small operations that if we lose, we lose little and if we win and we have a profitable trading system we reached our goal.
The drawdown will get closer until it reaches the initial capital of the account. This will happen when our capital has gone from 50 thousand dollars to 52 thousand and the drawdown will have gone from 48 to 50 and here the conditions change.
The drawdown can be reduced if we lose but if we win it can increase, something that could not happen before and this happens with all companies.
How do companies work trailing drawdown?
Some companies like EARN2TRADE, UPROFIT and ONE UP treat trailing drawdown differently. Most of them calculate it in real time with the potential profit that we have at that moment.
What is the potential benefit?
It is that benefit that we have in an operation that is open and that we have not yet closed
There are other companies that calculate the trailing drawdown at the end of the day. That is, you do all your operations and with the total result that you finish at the end of the day when the session ends, they calculate where that drawdown has to be.
During the evaluation and with the PRO account, top step trader perform the trailing drawdown at the end of the day, then calculate it in real time with the potential profit that we have at that moment.
In one part this is beneficial because the day we are operating and we are winning we have to go for more before they update those statistics because we are going to have more room for maneuver and the day we lose we have to stop so that the statistics are updated at next day and we will have a little more capacity again
What is the correct way to calculate trailing drawdown?
Without a doubt calculate it in real time with the potential profit that we have at that moment.
Imagine that we start operating with 100 thousand dollars and that we are earning 10%. We have not closed this operation yet and someone else arrives who wants to invest in us. We introduce him in the market with our orders so that he can replicate and that ends in break.
What is going to happen? that for all the first participants or investments they have not lost anything but for the last person who has entered if he ends up losing capital.
If you don’t already have a profitable system to control these variables when you trade, the Free Online Trading Course It will give you the necessary aspects to develop a reliable and profitable trading system from the first moment.